NFL Cross-Ownership Rules – Crossing the International Dateline

By jbalsam [Thursday, July 18th, 2013]

NFL Shahid KhanOff-season news in the NFL includes Jaguars owner Shahid Khan’s purchase of a soccer team – the English Premier League’s Fulham club.  He’s the third NFL owner, and sixth American, to buy into the Premier League.  Stan Kroenke, owner of the St. Louis Rams, owns a controlling interest in Arsenal, and Malcom Glazer, owner of the Tampa Bay Buccaneers, owns Manchester United.  (Randy Lerner, who owns Aston Villa, used to also own the Cleveland Browns.)

This latest transaction prompts reflection on the history of the NFL’s rules banning cross-ownership of teams in other leagues, which has evolved over the years in response to court rulings and changing market conditions.  Although the ban has never been applied to sports leagues in other countries, in view of business globalization and Internet access to far-flung entertainment sources, it’s worth considering the risks and benefits of NFL owners expanding their portfolios in this direction.

Reactive, not proactive, describes the NFL’s approach to its members’ interest  in owning teams in other leagues.  In the 1950s, as other professional football leagues tried to gain a foothold, the NFL Commissioner first announced a policy against a team owner maintaining a controlling interest in a team of a competing league.  Various League resolutions more formally banning cross-ownership were adopted in the late 1960s and 1970s.  This development came in part as a response to the emergence of the North American Soccer League, whose main cheerleader was Lamar Hunt, owner of the NFL’s Kansas City Chiefs.  Finally, in 1978, the NFL amended its Constitution and Bylaws to expressly prohibit a majority owner, or one of the owner’s close relatives, from having a controlling or substantial interest in another major team sport, defined to include baseball, basketball, hockey, and soccer.  In the ugly antitrust battle that ensued between the NASL and the NFL, a federal appellate court struck down the NFL’s cross-ownership ban on the grounds that it adversely affected competition in the capital market for the purchase of sports franchises (see NASL v. NFL).

In the aftermath of the 1980s antitrust litigation, the League operated as if the cross-ownership ban was still in effect, but authorized occasional exceptions (e.g., permitting Wayne Huizenga to own both the Miami Dolphins and Florida Marlins, and permitting Paul Allen to own both the Seattle Seahawks and Portland Trail Blazers).  The League codified this approach in an amendment to its Constitution and Bylaws that allows cross-ownership in another major league sports team in two narrow circumstances: (1) if the two franchises are in the same city, or (2) if the other league’s franchise is in a neutral market, defined as one that doesn’t currently host an NFL team and is not deemed a potential NFL city. Enforcement of the rule has been flexible, giving new controlling owners of NFL teams time to divest conflicting interests, and to do so in creative ways — for instance St. Louis Rams owner Stan Kroenke was allowed to satisfy the rule by transferring ownership interest in his Denver clubs (the NBA Nuggets and the NHL Avalanche) to his son Josh Kroenke.  Push has never really come to shove, however, and it is unclear how the NFL would have applied its current cross-ownership ban if Kroenke had been the winning bidder for the L.A. Dodgers back in 2012 (the League considers the L.A. market to be a potential team location although there’s no NFL team there now).

The NFL’s current cross-ownership rules arguably creates efficiencies that should save it from antitrust scrutiny.  Prohibiting certain types of owner involvement in other leagues assures owners will focus their efforts on the NFL’s success.  Cross-ownership creates special problems in leagues like the NFL where much of the revenue is shared among team owners.  Conflicts of interest could arise over negotiations for national broadcast rights if owners had teams in different leagues in multiple cities.  In this setting, the ban is necessary to block owners from freeriding on the investments of their fellow owners, for example, by using a league’s confidential information and business methods to assist a league in another professional sport.  Thus, there’s little conceptual difference between the NFL’s cross-ownership ban and widely-endorsed  joint venture non-competition agreements that are designed to secure members’ undivided loyalty.  On the other hand, on balance it makes sense to allow owners to take advantage of economies of scale and operational synergies created through ownership of multiple franchises in the same city.  To the extent the NFL plays a role in competition at the local level for sponsorship, ticket sales, luxury suite sales, etc., limiting cross-ownership to the same city or a neutral market defuses any risk that an NFL owner could abuse cross-ownership access to confidential competitive business information about another team’s local competitive efforts.

NFL owners’ move into international sports raises the question whether its time for the NFL to think more proactively about its ownership rules.  Are there ways to structure them to encourage certain investments that create synergies?  Are there international markets that the NFL wants to protect?  Are there risks to the NFL’s future success as owners branch out in this direction?

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